Quarter 1 2021 - Volume 26, ISSUE 1

Successful Entrepreneurship:
Do You Know Your Endgame?

Our job as billing company entrepreneurs is to work ourselves out of a job by developing people and systems that do away with the need for us to exist.

By Kyle Tucker

An enduring part of the American dream is starting your own business. There is a certain lasting myth of the American entrepreneur that fits right in with the American zeitgeist of independence, ingenuity, and verve. If we are brutally honest, the true representatives of the American spirit are not the Western cowboys, but the entrepreneurs like Henry Ford, the Wright Brothers, and Steve Jobs. 

Taking the leap of starting your own business can be terrifying. Although many people think their bosses aren’t all that sharp and that they could do a better job, more than a few would rather have someone else make the decisions, have to fork over the capital, and take the risk. It’s easy to Monday-morning quarterback from your cubicle; it’s quite another thing to get up each day and gamble with your own money against worthy competitors in the arena of the fiercely competitive marketplace with what you hope is a better mousetrap.

Even if you decide to take the leap and start your own business, odds are you won’t make it very long. According to the U.S. Bureau of Labor Statistics, roughly 20% of new ventures fail before they reach the age of two. If we extend that to their fifth birthday, the number rises to 45%. If we take it all the way to 10 years, 65% have closed their doors. Only one-quarter of new businesses make it to 15 years or more. The path is hard, and the risks are real.

Even if you have a successful business, there is a huge difference between being an entrepreneur and working for yourself. This key point is sadly lost on far too many business owners. Even the dictionary fails to comprehend this important nuance. The dictionary says an entrepreneur is “a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.” This entirely misses the point of a true entrepreneur.

My definition of an entrepreneur is taken from the The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael E. Gerber. It says that “Entrepreneurs are people who go into business with a vision of a company they want to create that doesn’t rely on their own ability to produce results.” What does that mean? It means your job, if you are an entrepreneur, is to create a company that doesn’t need you. It has people and systems you have perfected such that you can go on a long vacation or sell it to someone without industry experience and it will continue without a hitch. It means that if your company is still totally dependent on you, the owner, after a certain number of years in business, you are self-employed, not a true entrepreneur.

Someone that is self-employed (versus being an entrepreneur) has a job like anyone else but is their own boss. It is the accountant that leaves the CPA firm and hangs out her own shingle but never creates an entity that will survive her. Once she retires, the business retires with her unless she finds someone who has identical skills who can step into their own self-employed situation.

By way of contrast, an entrepreneur’s mission is to create a saleable asset. If your billing company can’t exist without you, you are stuck trying to find someone who has your skills or selling at a deep discount. Therefore, our job as billing company entrepreneurs is to work ourselves out of a job by developing people and systems that do away with the need for us to exist. If we can do that, we have a value asset that will demand top dollar.

When I started my billing company back in 2007, I wore a lot of hats. I would do anything from posting patient payments and opening the mail to cold-calling prospects and negotiating agreements with vendors. There were only five employees initially, so everyone had to be somewhat flexible in doing what was required. Since we bootstrapped the venture, we had to manage cashflow very tightly. Lack of capital, time, and resources were significant obstacles to me taking time out to build a system that we would make me expendable.

This doesn’t occur happenstance but as a business strategy. My company always took a portion of our retained earnings each year and used some of that to partially replace myself. We hired a controller to handle the books and payroll. We hired a salesperson to handle our sales and marketing. We handle one VP and then more. Slowly but surely I have become more and more expendable to my billing operations.

This doesn’t mean, by the way, that I necessarily have a company worth a high multiple of EBITDA just because the owner is not necessary to the functioning of the company. There are a lot more hurdles you have to clear to gain a high multiple: not too much revenue coming from one or a few clients, growth rate, retention rate, annual revenue above certain thresholds, etc. However, at the same time, you can have all of these going for the organization, but if it can’t survive without you, you will either have to stay on post-sale or the new owner will be stuck with solving this problem you could have solved for yourself, thus lowering your attractiveness.

My company is not unique. When you first start out opening a billing business (unless you come in with deep pockets, a big client, or investors), you need to do whatever it takes to make it work. You will key payments, make sales calls, review contracts, make hiring/firing decisions, troubleshoot software issues, or even make coffee. However, if you are still doing that 10 years later, you need to reevaluate what you are doing.

As owners, we need to focus on the big picture, which is impossible to do if you are drowning in the details.

The key steps for my company to building a system were as follows:

• Establish a plan: Business plans can be a joke—a forced march where you create a plan and stick it in a drawer never to see the light of day. Or they can be the superstructure on which your company is built. Set some goals for yourself and how you are going to get there. You can always change it as opportunities or challenges present themselves. As the old saying goes, if you don’t know where you are going, it doesn’t matter how you get there.
  
  
• Know your metrics: As the owner, you need to know where you stand in your companies’ evolution. Understand how companies are valued and what the going prices are in the M&A market. Know what the evolution of a medical billing company looks like from startup to sale. For example, when we reached roughly 60 employees, we had to completely reorganize from a client-based approach to a position-based approach. This is typical in our industry. Do you know the key thresholds to do various things like hire an HR person or getting a salesperson? If you don’t, you need to.
  
  
• Ruthlessly identify bottlenecks and costs: In order for your company to operate in a system, a system has to be developed. How do you go about doing that? Look at your processes and focus in on the costs and bottlenecks. Figure out how to do things more efficiently and more cost-effectively using technology. Eliminate tasks that add no value. Ask people why they do what they do. Ask if a task or process adds value to the company or client. Don’t do this by yourself; make it a part of your corporate culture, and have everyone involved.
  
  
• Retain earnings: Keep enough retained earnings in the business (versus taking a distribution) to invest in moving forward with your plan. Doing this made some lean years for me income-wise, but I kept on task. It will be nearly impossible to build a business if you don’t have enough money to invest in people and technology to take you to the next level.
  
  
• Develop personnel: Not only do you have to hire the right people, but you have to train them well and retain them. At my company, one of my early employees who originally was making close to minimum wage is now a vice president. Without overloading people, keep reassigning your work and giving people new challenges. Keep moving work downward—not only for yourselves but for your other execs, as well. There should be a steady supply of new organizational opportunities for your star performers.
  
  
• Get out of the details: Most people get into the medical billing business because they themselves are practitioners. Often, one of the biggest obstacles to building this system is the owner because they are always in the details. If you are one of these people, you need to understand that your role is to look at the big picture. You need to be spotting trends, not working on claims. You need to monitoring big-picture items like productivity and looking for new technologies, not working denials. Most of the time, the skills that got you here will not be sufficient to get you there. In other words, the owner has to constantly be upgrading their skills, focus, and activities commensurate with the size of the business. Those skills that worked for a small billing companies’ success can potentially be a hinderance to a larger billing company executive if they can’t add the skills required for their size and cull those activities that are no longer expedient.

Focus on building a good management team. Work on workflows and systems such that it is nearly failproof. Create new employee positions as you grow to fill those holes in your skill set. Slowly work yourself out of a job.

Think about Chick-fil-A as a good example of how this works. Chick-fil-A sell franchises. What is a franchise? It is a system that guarantees success if you follow their program. Franchisees are buying a perfected system of doing things from training people to managing cash to making French fries. You never go into a Chick-fil-A today and see people winging it. There are systems and processes for everything. For the most part, if you go into a Chick-fil-A in Midtown Manhattan to Manhattan, Kansas, the experience is the same. Billing company owners are tasked with building the billing version of Chick-fil-A—not the franchise per se, but the systems and processes.

That’s our job as billing company owners: to build those systems such that one day, if we choose, we have a great company that runs well in all facets without our constant oversight. If we do that, we will get top dollar for our companies if and when we decide to sell.

Kyle Tucker is a serial entrepreneur and the owner of Dexios Corporation, a revenue cycle management company that specializes in radiology.